Minutes Show Disagreement In Fed About Inflation

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While the Federal Reserve's recent decision to keep rates unchanged came with a unanimous vote, minutes of the central bank's last policy meeting showed that there is some division within the Fed on the issue of inflation.

Policy-makers also remained concerned about the labor market, with some unconvinced that recent better-than-expected jobs data definitively signaled a turn-around in employment.

Minutes released on Wednesday showed that the last Fed meeting was marked by disagreements about inflation.

The general opinion within the Federal Open Market Committee, the Fed's policy-setting body, was that slack in the economy would keep inflation in check for some time. However, some argued that inflation risks could pick up as public concerns about the massive amount of stimulus pumped into the system begin to affect inflation expectations.

Meanwhile, another group said that low inflation was likely on the horizon, with the significant economic slack and the low levels of actual inflation dampening inflation expectations.

The minutes also showed that the Fed generally sees that unemployment will remain "elevated for quite some time."

Also, several of those who participated in the meeting remained unconvinced that the labor market was beginning to strengthen.

There was a better-than-expected employment report for November, but the skeptics pointed out that "more than one good report would be needed to provide convincing evidence of recovery in the labor market," according to the minutes.

On December 16, the Federal Reserve once again left its benchmark interest rate at essentially zero, saying that consumer spending is hampered by high unemployment and that businesses remain reluctant to spend.

The Fed repeated its promise to keep rates low for "an extended period."

When the Fed originally announced this rate decision, it noted that economic activity has picked up since its previous meeting in early November. Meanwhile, the Fed suggested that the labor market was stabilizing, stating that "deterioration in the labor market is abating."

In addition, the central bank said that most of the special liquidity facilities are still set to expire on February 1, 2010. It expects its Term Auction Facility to be scaled back early in the new year. Meanwhile, the expiration date for the Term Asset-Backed Securities Loan Facility remains set at June 30, 2010.

While the Federal Reserve's recent decision to keep rates unchanged came with a unanimous vote, minutes of the central bank's last policy meeting showed that there is some division within the Fed on the issue of inflation. Policy-makers also remained concerned about the labor market, with some unconvinced that recent better-than-expected jobs data definitively signaled a turn-around in employment. (Market News Provided by RTTNews)